BHT identifies meaningful trends and important supply and demand levels in the financial markets. An understanding of these dynamics will add Alpha to any investment strategy. The following are important factors to consider in the S&P 500 Economic Sectors:
The S&P 500 has been consolidating between the 2,380 and 2,360 levels over the past two weeks. This follows profit-taking after an all-time high was made at the 2,400 level on March 1st. There is resistance at the 2,400 level because it is important psychologically and it will probably be resistance again when it trades back to that level. The popularity of ETFs causes there to be support and resistance at round levels. This is psychological and cannot be explained by traditional fundamental analysis.
Technology - The XLKs traded sideways around $53 over two weeks but are still in a well-defined uptrend. Longer-term, if they head lower there may be support around the $48 level because it was the top of the range from the middle of September through the end of October and again in late November. The $46 level was support in early September and early November.
Financials - The move in the XLFs after the election was almost unprecedented. It was one of their largest monthly gains ever. They continue to consolidate between $24.50 and $25 after breaking the top of the range they were in from early December through early February. Longer-term, if the $22 level breaks to the downside there could be a meaningful sell-off because there doesn’t seem to be well-defined support until the $20 level.
Healthcare - The XLVs are testing resistance and consolidating around the $76 level. As expected, there is resistance around $76 because it was the top in August.
Longer-term, the XLVs could be forming a multi-year Bearish reversal formation. This is a very important and interesting dynamic. This sector rallied throughout the Obama Presidency. One can argue that this sector profited due to the Affordable Care Act. Now Mr. Trump has said he will repeal Obamacare and this could be why this sector is showing long-term bearish indications. The $64 level is very important because it was the bottom in September of 2015 and again in February of 2016.
Consumer Staples - The XLPs have been consolidating around $55 over the past three weeks. If they rally they may run into some resistance around the $56 level because this is where they hit resistance and rolled over last July.
Industrials - The XLIs are consolidating around the $66 level after trading at all-time highs early this month. If they trade lower there will probably be support around $64 because it was resistance in December and January.
Energy – The XLEs have been trending lower after hitting resistance around $76 in December. There was resistance around $76 because it was the same level that the XLEs found support at in late 2014 and early 2015. They are consolidating now after breaking support around $71-72. This was the top of the range from August through November and it will probably be resistance if there is a rally.
Utilities - The XLUs have seen some profit taking after hitting resistance around the $52 level. This is not surprising because they became very overbought after being in a steep uptrend and these are the levels that the hit resistance at last July. Over the past week, they have consolidated around the $51 level.
Consumer Discretionary - The XLYs are consolidating around the $87 level after making all-time highs. Short-term, there is support around $84. Longer-term, there will probably be support around $82 because it was the top of the range in July and August and it was support in early December and early January.
Materials - The XLBs continue to consolidate around the $52 level. As expected there is resistance at this level because it was the all-time high in early 2015. Longer-term, $49 was the top of the range from the middle of July throughout the early part of September so there may be some support at that level if they trade down to there again.